Ask: I am 54 years old and have an IRA account with $27,000 in it but it has declined over the years even though I contribute $100 per month. I divided the funds into mid-cap value funds, core-plus bond funds, investment funds and smart retirement funds. Recent market conditions haven’t had much of an impact on my account, but I’m wondering if I should consider redistributing the money because I’m losing money? I would really like to increase my retirement savings as I plan to retire in 10 or 11 years and would like to have saved enough. My husband currently has a 401(k) through his employer offering a company match and he has about $150,000 saved up, but I’m afraid that’s not enough between the two of us. I’ve considered talking to a financial advisor, but would that help? (Want to hire a financial advisor as well? This tool can match you with someone who may meet your needs.)
Answers: First of all, kudos to you for taking your retirement into your own hands and not waiting for a few years to come. Knowing how much you need for retirement has multiple factors: it’s not just about how much you’ve saved, it’s also about knowing how much you spend each month. “Normally, people need about 70% to 80% of pre-retirement income to maintain a lifestyle,” says certified financial planner Spencer Betts of Bickling Financial Services. And that number can drop even more if you’ve paid off mortgages or plan to move to a place with a lower cost of living and lower property taxes. “Once you know how much it costs to live, the next step is to know how much you receive from Social Security and any pensions. Depending on your current income, Social Security can replace 25% to 60% of your income when you retire,” says Betts.
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Once you know how much income will replace Social Security, you can determine how much income you need to withdraw from your retirement accounts to give you enough to live on. And if you figure that out, you can roughly see how much you need to save to produce the amount of income on an annual basis. “A good rough estimate is the 4% rule — your investments can bring in 4% annual income, so for every $100,000 in investment, you could reasonably get $4,000 in annual income,” says Betts.
Should You Hire a Financial Advisor?
If that sounds like a lot to handle on your own, pros say you might want to consider a financial advisor, especially since your asset allocation might be a little off target (although of course this is also something you can do at your own pace). can solve). own). Zachary Morris, certified financial planner at Paces Ferry Wealth, notes that some of the investment selections you make may include overlapping asset classes, leading to unintended consequences. “Your mutual funds and smart retirement funds may also contain mid-cap value exposure, which may not have been your intention. My suggestion is to engage a financial advisor to help create a portfolio that provides exposure to all major asset classes that take an appropriate amount of risk to help you meet your retirement goals,” says Morris.
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Indeed, a smart retirement or target date fund is usually designed as prepackaged, one-size-fits-all options for people who retire around a specific date. “They typically give you exposure to many different asset classes, and a lot of the other funds you own just add additional exposure to assets you already own in your target date fund,” says Leslie.
You may benefit from talking to a financial planner who only advises and only pays. Advice only means you’re paying them for their time and they can help build a comprehensive financial plan. Using a certified financial planner professional can help you better understand your current situation and whether you’re headed for a comfortable retirement, Betts says. “You may need to delay retirement, cut your income, or consider other strategies. The sooner you know your choices, the better,” Betts says.
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